July 2002

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Guest Commentary 

Allan Zaremberg is president and CEO of the California Chamber of Commerce.

Governor Davis has recently released the May revision to California's 2002-2003 budget – basically the results of the 2001 tax collections – and the numbers are dismal: over a $23 billion shortfall. Such a deficit will affect every Californian at some level, regardless of whether your priorities are education, transportation or public safety. When 25 percent of your general fund budget disappears, virtually every state program is at some risk.

Many suggestions are circulating on how to reduce the budget shortfall, including borrowing money, raising taxes and cutting programs. The only real and permanent solution, however, is being overlooked. The answer to the state's imbalance between spending and revenues is a strong economy. Simply put, a strong economy generates revenue for the state to fund programs Californians need and want.

Increasing taxes could exacerbate the revenue shortfall and, although certain spending reductions are appropriate, cutting programs $23 billion will certainly hurt our education system and other important programs. Moreover, borrowing funds can be a disaster if the state doesn't have future revenue growth to pay back the loans.

You don't have to be Alan Greenspan to figure it out. California's experience in the '90s illustrates the link between a strong economy and funding for vital programs. As California climbed out of the last recession, businesses expanded and created jobs at a record rate. With such growth, the state was able to expand many important services and reinvest in education, infrastructure and public safety.

California's economic recovery during the last decade, though, didn't happen by accident. It came with help of the state's elected officials who adopted legislation to stimulate our economy. Exploding workers' compensation costs for California employers were reduced, even though benefits for injured workers were increased.  Tax credits for employers that created new manufacturing jobs were adopted and California's burdensome regulatory environment was reformed. The message was sent throughout the world that California had a pro-job attitude and bipartisan legislation to stimulate the economy was a strong catalyst.

A new decade and a new recession, however, has exacted the complete opposite reaction from the current legislature. Rather than suggesting legislation that would stimulate our stagnant economy, most proposals that are moving forward would stifle our future economic growth, and with it, essential revenues for education, infrastructure and public safety. Pending legislation would place additional taxes, fines, fees, mandates, regulations and criminal penalties on employers for operating businesses in the state. In addition, various bills would expose California businesses to more frivolous lawsuits. Hello? What are these legislators thinking?

These legislative proposals are separate from the massive increases in workers' compensation, unemployment insurance and health care costs that businesses will experience in the coming months.

Far from creating an environment in which businesses can flourish, if enacted, the anti-business legislation will dampen business expansion plans, and discourage entrepreneurs from starting new endeavors.

The fallout from onerous laws and regulations affects more than state revenues. The negative impact hits innovation, private investment in infrastructure, research and development and community programs.

Without a strong economy, government loses necessary revenue – plain and simple.  To restore that revenue, policymakers should encourage business growth and job creation, while steering away from over-regulation and laws that needlessly push the cost of doing business in California ever higher.

The state's history demonstrates that when businesses feel welcome to stay here, invest and expand, the economy grows stronger and the state’s budget revenues expand, yielding more funds for education and other essential programs.

In contrast, a bad economy leads to falling revenues and less funding for important programs. Ultimately, each anti-business bill that passes the Legislature short-changes our students and all Californians. We cannot afford such legislation.